Tuesday, December 11, 2012

15 End of Year Tax Tips for 2012

Many Americans are unaware of the thousands of deductions available and don’t bother to take the time to find out if they are eligible for them.  You can deduct tax credits and itemize deductions.  Tax credits lower the amount of taxes you pay. Tax deductions reduce the amount of income that is subject to taxes.  There are many strategies to help you to increase your refund or reduce the amount of taxes owed.  Hire a tax preparer or accountant or use a software tax package such as TaxCut or TurboTax to make sure you don’t miss out on any deductions.  Here are a few common deductions you can take.  

  1. Donate to a charity and make sure you get a receipt.
  2. Defer income such as year-end bonuses or commissions if your tax rate will remain the same or decline.
  3. Review your investment portfolio to see if you need to make any updates or cash in any stocks if you have losses to offset them.
  4. Donate to charity money or goods.
  5. If you owe taxes setup payment plans immediately.
  6. Pay January bills in December.  Pay a real estate tax bill, mortgage payment or medical bills due in January by December 31, 2012 which will help lower your tax bill through itemized deductions.
  7. Install energy efficient appliances to take the tax credit.
  8. If you know you will owe taxes this year adjust your withholdings to have more taxes taken out of your last paycheck.
  9. If you are currently unemployed or were unemployed you can deduct expenses incurred while looking for employment such as: parking, tolls, resume preparation services, and travel expenses.
  10. Contribute to a Roth IRA.  You have until April 15, 2013 to contribute up to $5,000 of your earnings to a traditional or a Roth IRA or $6,000 if you’ll be age 50 or older by December 31. It’s best to contribute before the end of the year to increase your contributions.
  11. If you might have to pay estate taxes, you can gift $13,000 annually to any individual without the gift counting against them. Married couples can give a total of $26,000 to an individual.
  12. Convert from a traditional IRA to a Roth IRA if you think your tax rate will increase in the future. You do have to pay taxes on earnings in your traditional IRA for the year you convert. You will pay taxes at current tax rates.  Converting to a Roth is only a good option if you have enough money outside your IRA to pay the taxes.
  13. Contribute the maximum to your retirement account. The limit is $17,000 for 2012 or $22,500 if you are age 50 or over.
  14. If you are self-employed, setup a retirement plan. Contributions can be made until April 15th.
  15. Make sure you use all the money in your flexible spending account otherwise you lose the money.

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